Variable Life: Death benefits funded by investments

Variable life insurance is similar to universal life in that a portion of the premium is used to pay the cost of insurance and fees while the excess is used to build a greater cash value than is usually available with level premium whole life. The primary difference, however, is that the accumulation portion of the policy can be used to invest in the company's portfolio, taking advantage of the growth in such things as stocks and bonds, mutual funds, equity funds, and money market funds. request quote online >>

The advantage is that greater growth is possible than in a universal. Also, if the money is invested in stocks, mutual or equity funds, your annual statement may show a dividend payment. Any tax on the growth is deferred as long as the policy is not surrendered. Earned interest or dividends can be used to pay premiums, thereby lowering the cost of your annual premium for the policy. Upon the death of the insured, the cash value of the policy is paid.

While the potential for growth can be attractive when the economy is performing well, there is a downside. Since the funds are variable investments, they are considered securities and are subject to greater risk. That is, if the market performs poorly, your entire investment can suddenly be lost, leaving you without enough money to pay the cost of insurance for your death benefit. If your accumulation fund drops, the face value of your death benefit will also drop, although not below a specified level according to the tables in your policy. Furthermore, unlike a universal, you cannot take cash out while you are living. You may, however, be able to adjust the face value, depending on the terms of your contract.

Variable life is available with the same riders and provisions you can get with Term, UL or Whole life. If you want to try a variable life, you should do so while you are young because the cost of your insurance will be affordable and most of your premium will go to build your accumulation fund. However, they are not for the faint-hearted; since most people do not have the time to monitor the investments, it is important to choose a company who can provide an agent that is capable of keeping track of your funds, moving them in and out of various instruments as necessary. Even with the best of brokers, however, loss is a definite possibility.

Variable life is difficult to find as it requires a company and an agent who is licensed to sell securities. This is a Federal series 6 or 7 license and is not held by the average life insurance agent. Also, universal life policies are so much more flexible from the viewpoint of the insured that most companies have phased out variable life.

Do not confuse variable life with adjustable life which is simply a type of policy that begins with very cheap premium rates but is typically adjusted as time goes on. If you are interested in variable life, ask for a track record of the company. What other clients do they have, and how has the product performed over a 10 or 20 year period. Expect to pay a bit more if you are a smoker. request a quote now >>